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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Conceptual Framework of Corporate Governance

Meridian Textiles Ltd's promoter-chairman also acts as managing director. Minority shareholders argue that the board is a group of trustees who must hold company assets for the benefit of shareholders and act with utmost care. Which theory of corporate governance does this argument reflect?

The argument reflects the trusteeship (fiduciary) theory. Under it, directors hold the company's assets as trustees for shareholders and must act with care and loyalty. Stewardship theory stresses managers' intrinsic motivation, while agency theory addresses conflicts between owners and managers, so neither fits the facts as well.

  1. AStewardship theory
  2. BStakeholder theory
  3. CAgency theory
  4. DTrusteeship (fiduciary) theoryCorrect

Explanation

The argument treats directors as trustees who hold the company's assets for shareholders and owe fiduciary duties of care and loyalty. That is the trusteeship or fiduciary view. Stewardship theory instead assumes managers are intrinsically motivated to act in the owners' interest, and agency theory focuses on conflicts between principals and agents.

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